Producing Short-Term Forecasts of the Irish Economy: A Suite of Models Approach.

A new working paper from Niall Conroy and Eddie Casey of the Fiscal Council Secretariat.


The Council’s mandate includes endorsing, as it considers appropriate, the official macroeconomic forecasts of the Department of Finance on which the annual Budget and Stability Programme Update are based. As part of the endorsement process and for the purposes of its ongoing monitoring and analysis of the Irish economy, the Council’s Secretariat produces its own Benchmark macroeconomic projections. This paper describes the short-run forecasting models used by the Secretariat for producing these projections. The general forecasting approach can be described as follows. Equations are used to forecast each component of the expenditure side of the Quarterly National Accounts. Multiple models are estimated for most components, with the simple model average used as an initial input into the formulation of the Benchmark projections. The out-of-sample forecasting performance of these models is assessed at each endorsement round. In addition to these model-based projections, other elements are considered. Discussions with the Council and other forecasting agencies help to guide any judgement that may be applied before arriving at the final Benchmark projections.

Mortality and Morbidity in the 21st Century

In 2015 Anne Case and Angus Deaton wrote a paper documenting mortality increases among white middle-aged lower socio-economic status people in the United States. The paper attracted a lot of debate both in terms of its political implications and the complexities of the statistical analysis used to calculate the trends (see e.g. Gelman and Auerbach reply, Case and Deaton reply; Noah Smith summary of the debate).

Case and Deaton have recently released another working paper that increases the scope of their original work, including the addition of a wider set of comparison groups, including Ireland. The paper is available at this link. The key table that includes Ireland is below, showing the well-documented declines in mortality during this period, that were partly offset by increases in deaths from drugs, alcohol, and suicide. The late Brendan Walsh had an excellent paper that shows what lies beneath the suicide aspect of most of these trends for Ireland, in particular the competing roles of high but declining rates of alcohol consumption and initially low but then sharply increased rates of unemployment. Richard Layte and others have written about the patterns of mortality during the bulk of this period. The declines in mortality from heart disease among this age group really gives some pause for thought.

The Silicon Docks and the Housing-Rental Crisis

The latest Irish rental price report has just been released. As always, Ronan Lyons has done great work documenting rental-price inflation.

Rental prices are at an all-time high. But Dublin is clearly diverging from the rest of the country, with what can only be described as rampant and runaway rental-price inflation, which is completely unsustainable.

The media – and housing economists more generally – have correctly pointed out the importance of high-demand and weak supply. In turn, the focus is explaining the weak supply of rental properties: AirBnB etc.

But what about the role of income-demand in driving up rental prices?

Surely, the high-wage ICT sectors of the economy have a role to play in driving up the price of domestic non-tradeables in Dublin city?

The elephant in the room is the role of inward migration, and the impact of non-Irish employment in Dublin’s Silicon Docks.

The two graphs below are taken from my research on FDI flows into the ICT sector. It shows two things: FDI in the ICT sector is central to the Irish recovery, and ICT is the highest paid sector in the economy.

So, who are these workers, and where do they all live?

Google opened it’s offices on Barrow Street in 2004. An additional 80+ Silicon Valley firms have since followed. By 2016, the sector had grown to around 16,000 employees. Most of the growth (labour market cluster effect) is driven by inward-migration of skilled multi-lingual graduates.

Might the Silicon Docks, and the inward migration of high-paid sales/tech workers from across the EMEA, explain the rental-price inflation?

This is not an argument against inward migration, nor the positive effects of Dublin’s high-tech sector. It’s been great. But it has a cost, which policymakers are clearly incapable of responding to: the rapid increase in non-tradeable prices, particularly housing-rental prices in Dublin.

It seems to me that it’s only a matter of time before a populist rhetoric emerges along the following lines: the Irish government use low corporate taxes to lure global MNC’s from Silicon Valley to employ mobile multi-lingual graduates from across the EU/globe, who pay 2,000 euro a month for 1-bed apartments, whilst the Irish serve them pints in the local bar.

FDI projects

Source: Regan & Brazys (2017); IDA and authors calculations.
Weekly wages

Source: Regan & Brazys (2017); CSO and authors calculations.

Barrington Prize – Statistical and Social Inquiry Society of Ireland

On behalf of the SSISI, please be advised that applications for this year’s Barrington Prize are now open.

Submissions should be based on a paper of not more than 7,500 words addressing a topic of relevance to economic or social policy and of current interest in Ireland.

Submission deadline: 8th September 2017.

Previous winners of the prize include Rebecca Stuart (Central Bank), Ronan Lyons (Trinity College), Mark McGovern (Queens) and Yvonne McCarthy (Central Bank).

Submission details here

The UK’s Brexit Bill and the European Investment Bank

The annex to the EU-27 negotiating position released yesterday in Brussels states clearly that the UK will be departing the European Investment Bank, in which it is a 16.1% shareholder.

The UK will expect to be credited with the value of these shares when the exit bill comes to be totted up. How much are they worth?

According to the latest accounts the EIB had net worth of €66.2 billion at end 2016, and has been posting annual profits around €2.7 billion. By Brexit Day (March 29th 2019) the UK share of net worth should be at least €11 billion, not a small amount in the context of the row about money which has already commenced.

There are complications: the EIB retains all earnings and does not pay dividends, so owning shares has not been much fun. But as a result it has a CET1 ratio of 26.4 and leverage under 9, as well as a AAA credit rating, high liquidity and ECB access. This will be the last European bank to go bust.

There is very substantial uncalled capital, in the UK’s case €35.7 billion. This is in effect an option against the shareholders and hence a contingent liability. However there seems to be very low likelihood that this capital will ever be called. If it were called from all shareholders leverage would drop towards 2!

When the UK is ejected, who buys the shares? It could most conveniently be the EIB itself, from reserves. The bank looks to be over-capitalised. Numerous other angles will arise – the EIB shares are a substantial item and have been overlooked.